Jobs Strength Is There, Now Sustainability Needed

December is the traditional month of gift-giving and so it was for the labor markets. Businesses gave the gift of solid hiring to job seekers. The question is whether companies will keep up the pace in 2012.

Nonfarm payrolls added a better-than-expected 200,000 slots in December, with jobs added in manufacturing, construction, and private services. The December unemployment rate fell to 8.5%. That was the second consecutive decline and took the rate down to its lowest since February 2009.

A sustained pace of December-caliber job growth is needed to trigger the virtuous cycle of more income generating more demand which causes businesses to add more workers. The key word there is “sustained.”

While the economy looks poised to grow at a modest pace this year, it is important to remember that the outlook is hobbled with uncertainty about the euro-zone debt crisis, political infighting, and the trend in oil prices. [It is telling that Friday's financial markets largely ignored the good U.S. jobs report and focused instead of the continued troubles in Europe.]

The labor markets are healing, but they suffered intense wounds during the recession. More than 13 million workers are still unemployed and another 10 million or so are underemployed or are too discouraged to even look for work. It will take years before the labor markets approached anything close to normal employment.

Worse still, 42.5% of the unemployed have been out of work for more than six months. Their absence from the workforce puts a heavy burden on the economy.

“Long-term unemployment imposes severe economic hardships on the unemployed and their families, and, by leading to an erosion of skills of those without work, it both impairs their lifetime employment prospects and reduces the productive potential of our economy as a whole,” Federal Reserve Chairman Ben Bernanke told Congress last July.

December was a good first step toward repairing the labor markets. But one month is not a cycle. The U.S. needs many more months of solid job gains to make this recovery feel like one.

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